Two common measures for sales effectiveness are win rate and pipeline conversion rate. Many confuse or conflate these concepts. “Win rate” has become a generic term used when managers or leaders are looking to quantify a seller or team’s success at closing deals. Win rate is a suitable metric for that purpose, but its value in predictive analytics and forecasting is limited. Sometimes when a business leader is inquiring about win rate, they really need a pipeline conversion rate.
Sales operations leaders may inadvertently use win rate when pipeline conversion is the better solution. Or business leaders may need help understanding the nuance between the two metrics. Let’s define each and establish when you should choose one or the other.
Win rate is the percentage of valid deals closed in specific time period that were won. In other words, won opportunities divided by won and lost opportunities. “Valid deals” exclude opportunities closed because they were deemed invalid or duplicate. You can calculate win rate using opportunity count or opportunity value. In fact, it is commonly presented in both forms (win rate % by count and win rate % by value).
Win rate is best used in a comparative setting:
- Longitudinally (trended over time) to show improvement or decline for diagnostic purposes
- Segmented by product, sales team, marketing campaign or competitor to gain insight from performance variations
It’s important to recognize that win rate doesn’t account for opportunities that slip to later periods. A 35% win rate does not imply that the average opportunity has a 35% chance of being won. To perform that kind of predictive analysis, another metric is better suited.
Pipeline Conversion Rate
Pipeline conversion rate is the ratio of business closed within a given time period versus the open pipeline measured at the start of the same period. Closed business is best measured from your back office system, not your CRM. Compiling this metric is more complex than win rate, since the numerator and denominator are measured at two different points in time, and from separate sources. Pipeline conversion rate is almost always calculated based on opportunity value, not count, to enable revenue projections and sales forecasting.
Sales operations should compile pipeline conversion rates, segmented for various parts of the business. This enables them to offer sales leaders and managers revenue projections based on current-period pipeline measurements. Consider our earlier example: a 35% pipeline conversion rate does imply that 35% of the current period’s initial pipeline value can be expected to close by the end of the period. Understanding pipeline conversion rates increases the accuracy of many operational activities including sales forecasting, setting pipeline creation goals, territory design, and quota-setting.
Recognizing which metric to use in different use cases will improve the value of your diagnostic and predictive analytics, especially if you can segment these metrics by the dimensions most important to your business.